Southwest Airlines 2011 Annual Report Download - page 120
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Unrecognized prior service cost is expensed using a straight-line amortization of the cost over the average
future service of Employees expected to receive benefits under the plans. Actuarial gains are amortized utilizing
the minimum amortization method. The following actuarial assumptions were used to account for the Company’s
postretirement benefit plans at December 31:
2011(2) 2010 2009
Wtd-average discount rate ............................... 4.05% 4.30% 4.80%
Assumed healthcare cost trend rate(1) ...................... 7.50% 7.50% 8.00%
(1) The assumed healthcare cost trend rate is assumed to remain at 7.5% for 2012, then decline gradually to
5.0% by 2024 and remain level thereafter.
(2) Includes AirTran plans.
The selection of a discount rate is made annually and is selected by the Company based upon comparison
of the expected future cash flows associated with the Company’s future payments under its consolidated
postretirement obligations to a yield curve created using high quality bonds that closely match those expected
future cash flows. The assumed healthcare trend rate is also reviewed at least annually and is determined based
upon both historical experience with the Company’s healthcare benefits paid and expectations of how those
trends may or may not change in future years.
17. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The
components of deferred tax assets and liabilities at December 31, 2011 and 2010, are as follows:
(in millions) 2011 2010
DEFERRED TAX LIABILITIES:
Accelerated depreciation .......................................... $3,537 $3,020
Other ......................................................... 84 112
Total deferred tax liabilities ................................... 3,621 3,132
DEFERRED TAX ASSETS:
Fuel derivative instruments ........................................ 155 194
Deferred gains from sale and leaseback of aircraft ...................... 44 49
Capital and operating leases ....................................... 141 22
Accrued employee benefits ........................................ 267 226
Share-based compensation ........................................ 39 42
State taxes ..................................................... 78 74
Business partner income .......................................... 207 129
Net operating losses and credit carrybacks ............................ 212 3
Other ......................................................... 175 114
Total deferred tax assets ...................................... 1,318 853
Net deferred tax liability ...................................... $2,303 $2,279
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